The Presidium of the Supreme Arbitrazh Court of the Russian Federation (the "SAC Presidium") held that the concept of "in house" arbitral institutions is contrary to Russian law in two different decrees in May and June this year. The main provisions of these conclusions and their practical effects are considered below.
The SAC Presidium opinion
The establishment of permanent "in house" or affiliated arbitral institutions in major industrial and financial companies is common practice in Russia. Companies in these sectors often include an arbitration clause in their standard agreements with contractors, providing for resolution of disputes in their own affiliated arbitral institutions.
The admissibility of awards granted by such institutions has already been called into question prior to the decrees by the SAC Presidium. For example, the SAC supported the reversal of a judgement awarded by a tribunal constituted under the Vashe Pravo LLC affiliated arbitral institution to the law firm Vashe Pravo LLC, the original claimant (SAC order dated 10.11.2008 No.10509/08). The SAC also supported the reversal of an award in favour of OJSC KAMAZ issued by a tribunal constituted under the OJSC KAMAZ affiliated arbitral institution (SAC order dated 02.03.2011 No. ВАС-11755/10). Despite these decisions, many companies still continue to maintain affiliated arbitral institutions for use as a dispute resolution forum for disputes with their contractors. However, two recent decrees of the SAC Presidium will most likely put an end to any doubts on the admissibility of awards granted by such arbitral institutions. The SAC Presidium decrees (unlike SAC orders) are considered determinative on any inferior court.
By a decree dated 24 May 2011 No.17020/10 the SAC Presidium reversed the previous orders of inferior courts and rejected Sberbank's application to issue a writ of execution to enforce the judgement of a tribunal constituted under the CJSC Investment-Construction Company SberbankInvestStroy arbitral institution. In its decree, the SAC Presidium noted that the chairman and vice-chairman of an arbitral institution, the list of arbitrators, and an additional list of arbitrators was approved by the claimant itself (Sberbank), as the holder of 100% of the shares in its subsidiary, CJSC Investment-Construction Company SberbankInvestStroy. Given these facts, the SAC Presidium in particular stressed that unilateral constitution of an arbitral institution by one of the parties to the dispute contradicts the principle of arbitration.
Similarly, on 28 June 2011 the SAC Presidium heard another matter involving an affiliated arbitral institution, and resolved that where a claimant refers a case directly to a Russian state court despite the presence of an arbitration clause referring disputes to an affiliated arbitral institution, the court is entitled to ignore the arbitration clause and the defendant (here JSC Industrial Union RosProm) will not be able to dispute the jurisdiction of the Russian court. The award in question is not currently in the public domain.
The opinion of the SAC Presidium confirms the existing leaning of Russian courts towards dismissing awards granted by tribunals constituted under affiliated arbitration institutions. In practical terms the recent decrees will have the following effects:
- If a claim is filed with a state court despite the existence of an arbitration clause referring disputes to an affiliated arbitral institution, the defendant can no longer apply for termination of the court proceedings without prejudice, since the relevant arbitration clause will be void.
- If an affiliated arbitral tribunal has already issued an award, then issue of a writ of execution for its enforcement is likely to be declined under the authority of paragraph 1 of article 8, and articles 12 and 18 of the Federal Law On the Arbitral Tribunals in the Russian Federation, as to recognise the award would violate the principles of arbitration.
- Finally, existing rulings of lower courts regarding similar circumstances involving affiliated arbitral institutions, and which have already taken legal effect, will now be subject to review (under paragraph 5, part 3, article 311 of the Arbitrazh Procedure Code of the Russian Federation) as they diverge with the opinion of the SAC Presidium.
Presumably many large companies will now have to waive the practice of using "in house" arbitration to resolve disputes with contractors, or develop a mechanism for constitution of the arbitral tribunal that is independent of the company itself, which will be difficult if the company is a party to the proceedings. Since the majority of affiliated arbitral institutions were established precisely for the purpose of hearing disputes involving the companies which establish them, the numbers of these "in house" institutions in existence are now likely to fall away.